If you have the mind to take the risk just like a gambler or in love with extreme sports and activities such as skydiving or bungee jumping then you may be the right person for pre-construction real estate investing. Pre-construction returns are sometimes among the highest in the industry. And so are the risks as well.
You will find the ultimate highs and lows that can be seen in the ground of real estate investing lie underneath the umbrella of pre-construction returns and several of the big names we hear pretty well in the real estate investing business have made much of their riches through speculation and pre-construction sales.
Before I go any further, one word of caution should be spoken. While the potential for profits in this particular corner of the real estate market is unconventionally high the risks are also abundant. This is speculative real estate at its very greatest and as we have all learned in the past when the situation worst in a precise market those who invested more are the ones who regularly loose most severely.
Insofar as pre-construction real estate is there are a few explanations. The first is also the most observable. You are buying real estate at some point before construction is complete. In hot markets, you will often need to purchase the units before ground was broken on the project in order to get the lowest price for your investment and the highest potential payoff for your pockets.
Once you’ve purchased the unit or units you plan to sell you then begin seeking buyers for those units. In markets that are on fire like some Vegas suburbs and big retirement and vacation cities along the Florida coastline, the same property is not exactly uncommon for a property to change hands and have several owners before the unit is complete. Each one will take a little something home from the table for their efforts with those who get in earliest often taking the largest piece of the pie home with them.
You may be wondering why this occurs and the answer really is simple. When the contractors attempt to get funding for their buildings in these large complexes they often need to have a certain percentage of the units “pre-sold” in order to convince the banks that there is an adequate market and to garner some of the revenue that is needed to get the venture up and running, so to speak.
So real estate investors buy these units at rock bottom prices because essentially they are paying for the idea of the unit (which hasn’t at this time been built and isn’t yet approved to be built in many cases) rather than a brick and mortar property.
As the project draws closer to completion, particularly in markets where real estate is in high demand, the value of the property rises dramatically ending in ridiculous profits for those who have managed to hang on.
The risks, however, are many. There is any number of things that can go wrong on a project such as this not the least of which is that the demand for housing will be met before the unit is actually built. This has happened and continues to happen.
Also, recessions, business closings, economies collapsing, and tragedies in the vicinity can occur before the property is complete leaving everyone who has invested heavily in the project holding a little bit of the bag and losing their profits and, quite possibly, their investment. These projects generally take a great deal of time to complete which makes the risks that much greater and the anticipation of these events a little more difficult to map out ahead of time.
If you can manage to make it through however many investors see more than a one hundred percent return on their investment making it a popular type of investment among many despite the rather large risks involved.